**Parkes' Financial Institutions and Markets Assignments Page**

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Course Assignments:

** Week 10**

**Bring your calculators today!!****Homework on options markets and interest rates swaps is DUE Today.****Day 17 PPT - "Not available yet"****Chapter 24: Options (notice ONE PPT - One Chapter in the 6th Edition)**- Swaps and Credit Derivatives
- Credit Derivatives
- As Warren Buffet says: Are Credit Derivatives a time bomb?

**Mishkin Chapter 19 PPT - Insurance Companies and Pension Funds****Chapter 19: Insurance Companies and Pension Funds**- Insurance Companies - certainty equivalent
- Fundamentals of Insurance
- Adverse Selection and Moral Hazard
- Deductible

- Insurance Companies - certainty equivalent

- Bring your calculators today!!
**Day 19 PPT - Homework and Quiz Answers****Mishkin Chapter 19 PPT - Insurance Companies and Pension Funds****Chapter 19: Insurance Companies and Pension Funds****Growth and Organization of Insurance Companies****Types of Insurance****Pension Funds****Retirement**

** Week 11**

** Week 9**

**Bring your calculators today!!- Tutorial on Futures Today - Homework assigned****Day 15 PPT - "Stock Market Indexes since the 1970s"****Mishkin's Chapter 23 PPT (Chapter 25 in the 6th Edition)****Chapter 23: Futures and Forward Markets****Forward Markets**- What is a hedge?
- Pros and Cons of Forward Markets

**Futures Markets**- Financial Futures Contract
- Arbitrage
- Open Interest
- Globalization of Financial Futures Markets
- Margin Requirements
- Managing Interest Rate Risk
- Micro and Macro Hedges - Basis Risk

**Bring your calculators today!! - Tutorial on Options Today - Homework assigned****Homework on futures markets and hedging. Hint: remember the numbers are already in 100s!****Day 16 PPT - "Not available yet"****Chapter 23: Continued**- Stock Index Futures

**Chapter 24: Options (notice ONE PPT - One Chapter in the 6th Edition)**- Strike Price
- American versus European Options
- Option Contracts: Puts versus Calls

** Week 8**

**For interest rates you can also use the commercial bank lending rate under the World Factbook for your country at the CIA website****Two potential websites to help with Homework:The CIA website and Econstats A little change - no graph needed - just expectations about the exchange rate.**

**Bloomberg.com had an interesting article about the Group of 7, China and yuan appreciation - they are supportive!****Is China's economy ALREADY responding to the stimulus? - One article think's so here!****Forex homework due today - See Day 12 PPT and Do #8****Chapter 13: International Financial System and Monetary Policy - An Introduction****Mishkin Chapter 13 PPT****Foreign Exchange Intervention and the Money Supply**- Unsterlized Intervention
- Sterilized Intervention

**For your own knowledge - not on the Final Exam**- Balance of Payments
- The Gold Standard
- Bretton Woods Fixed Exchange Rate System
- EMS

**Mishkin Chapter 15 PPT - The Banking Firm and Bank Management****Chapter 15: The Banking Firm and Bank Management**- The Bank Balance Sheet - Know the Basic 4 Assets and 4 Liabilities!

**Basic Operation of a Bank**- T-Account - Changes in the Balance Sheet ONLY

**Forex homework due today - See Day 13 PPT****Day 14 PPT - "Not available yet"**- Deposit Outflows and Reserves

- Liquidity Management
- Asset Management
- Liability Management
- Capital Adequacy Management - ROA Versus ROE and EM

- Operating Income
- Operating Expenses

** Week 7**

**Bring your calculators today!!****Day 11 PPT - "Thursday's Assignment"**- Two potential websites to help:The CIA website and Econstats

**Mishkin Chapter 12 PPT - Foreign Exchange Markets****Chapter 12: Foreign Exchange Markets**- What are Exchange rates? - Prices!

**Exchange Rates in the Long-Run**- The Law of One Price
- Purchasing Power Parity
- Factors affecting Long-Run Exchange Rates
- Relative Prices
- Tariffs and Quotas
- Preferences
- Productivity

**Exchange Rates in the Short-Run**- Expected Returns - Domestic versus Foreign
- The Interest Parity Condition

**Forex homework due today - See Day 11 PPT**- Two potential websites to help: The CIA website and Econstats

**Day 12 PPT - "Assignment for Tuesday"****Exchange Rates in the Short-Run**- Equilibrium in the Foreign Exchange Market
- Expected Returns - Domestic versus Foreign
- The Interest Parity Condition
- Equilibrium in the Foreign Exchange Market

**Explaining Changes in Exchange Rates**- Do #8 on page 360 for Tuesday's class - 5 points

** Week 6**

**Bring your calculators today!!****Turn in Mortgage "Points" quiz from last week at the beginning of class - Questions before class!****ARE YOU READY FOR THE TEST? - Some thoughts about preparation for any exam.****Homework calculating the Price of a stock - Complete the Gordon Growth Model Price at home, we will calculate the P/E ratio in Class****Mortgages continued - Today's mortgage market**- Secondary Mortgage Market: FNMA, GNMA and FHLMA
- Mortgage Backed Securities
- CDOs and CMOs
**Click here for a basic primer on MBS and CMO/CDO**- Also here is an article from the
*New York Times*entitled "What's it all Worth?"

**Midterm Exam is on Thursday, Jan. 8 at 6:30 pm!****Day 10 PPT - "MBS and Pass-Through definitions" from Investopedia**

**MIDTERM EXAM at 6:30 to 8 pm!!!**- Class 1 and 2: Room 2112
- Class 3: Room 2212

** Week 5**

**Problem Set 4 due at the beginning of class today!****Bring your calculators today!!****Midterm Exam is on Thursday, Jan. 8 at 6:30 pm!****Day 9 PPT****Day 9 PPT - The Fed, a brief****Chapter 11: The Mortgage Market**- Mishin Chapter 11 PPT: Mortgages! (Called Chapter 12 on PPT)
- Types of Mortgage Loans
- Conventional or Standard
- ARMs - Adjustable Rate Mortgages
- Others

- Characteristics of the Residential Mortgage
- Mortgage interest rates
- Points
- PMI
- Mortgage Loan Amortization
- Computing the Payment on a Mortgage

**RELAX AND ENJOY THE DAY!!!**

** Week 4**

**Notice in Edition 5 of Mishkin's Textbook, Chapter 11: Stock Markets, is a separate chapter.****Bring your calculators today!!****Quiz today - To buy a Muni or Corporate Bond - Marginal Tax Rate consideration (MTR)****Day 7 PPT****Supplemental Day 7 PPT - "Call" Bond Calculations and Bankruptcy stuff****Chapter 10 continued - Capital Market Financial Instruments**- Corporate bonds
- US Government Agency securities (Especially Fannie Mae and Freddie Mac - See Mortgage Chapter too!)
- State and Local Gov't

**Remembering Valuation of Bonds and Stocks - TUTORIAL: Problem Set #3: Bond Valuations****Pick a company, give the ticker symbol and the last dividend as well. 5 pts - Due Thursday, Dec. 25. SEE Today's PPT**- The New York Times article discussed in class on NEWLY ISSUED Treasury Notes and Bonds

**Problem Set 3 due at the beginning of class today!****Bring your calculators today!!****Link to the TI BAII Plus Calculator - Can you find one in China? Let me know!****The HP 10B ALSO a GREAT Calculator - HP is big in China, printers especially - Can you find me a calculator?****Looking to Thursday, Jan. 8 at 6:30 pm for the Midterm Exam!****Day 8 PPT****Supplemental Day 8 PPT - Stock Calculations "Advanced"****Chapter 10 continued - Capital Market Financial Instruments**- Corporate Stocks
- Mishin Our end of Ch. 10 the NEW Chapter 11 PPT: Stocks!
**Remembering Valuation of Bonds and Stocks - TUTORIAL: Problem Set #4: Stock Valuations****For the company you chose, give the P/E, dividend growth rate, SEE PPT Day 8 (5 pts) - Due Tuesday, Dec. 30**

**Notice in Edition 5 of Mishkin's Textbook, Chapter 11: Stock Markets, is a separate chapter.**

** Week 3**

**December 16, 2008** ** Finish 8 and begin Chapter 9: The Money Markets**

**Bring your calculators today!!****Supplemental Day 5 PPT - Bond Calculations (See Problem Set 2 below)**- Hyperinflation and Fed Funds are discussed in a PPT - Thoughts And Questions - Day 5
**Chapter 8 continued - The Fed tools...**- Tools of the Central Bank: Open Market Operations (Buying and Selling Bonds), Discount Rate, Required Reserve Rate
- The Fed: Goals and Targets - we will talk about the Central Bank ALL term, but one last topic at the end of Chapter 8

- Cantor-Fitzgerald & Co. - Most Important Bond Trader on Wall Street
**Day 5 PPT****Consumer Prices in the US Came out Tuesday DOWN 1.7%!!! - FOMC MEETING Fed Funds Target is ZERO!!**

**Bring your calculators today!!****Quiz today - ???****Problem Set 2 due today! TUTORIAL AT THE BEGINNING OF CLASS TODAY!****Just use the Current Price from the 3 year Bond at Bloomberg.com here**- Bloomberg.com keeps changing the 3 year Bond date (and coupon) to reflect three years from today. So the coupon rate today is 1.125%
**Day 6 PPT****Mishkin's Chapter 9 PPT - The Money Market****Mishkin's Chapter 10 PPT - The Bond Market****Chapter 9: Money Market Financial Instruments**- US Treasury Bills
- Negotiable CDs
- Commercial Paper (know those three components of this one)
- Banker's Acceptances
- Federal Funds - Daily and Target FF rates, 2008
- Eurodollars

**Liquidity Preference "Framework:" The Supply and Demand for Money (End of Chapter 4 in our book)**- 1st note: Quantity of Assets Supplied = Quantity of Assets Demanded
- 2nd note: The interest rate is the opportunity cost of holding money - it's like the price of money
- Shifts in Demand and Supply
- Applications: Boom/Recession in the Economy, Price level changes, Money Supply Changes
**Compare the results for Booms/Recessions with the Loanable Funds Framework - they are equivalent!****Higher GROWTH RATE in the Money Supply: the "Effects"**Last topic in Chapter 4

**Chapter 10: Bond Market Financial Instruments**- US Government securities: U.S. Treasuries mostly
**Capital Market Interest Rates**

**For Tuesday, December 23, 2008 find the current 10 yr. U.S. Treasury Note rate, 30 yr. U.S. Treasury Bond rate, average corporate bond AAA and BBB rates (see p. 293), and the a recent municipal bond rate. (5 pts)****At the Fed: Here is a good website for the Current Rates - pick only the ones that you need. Printing this page will only get you one point!****See Chapter 10 for definitions, etc. (Also the Ch. 10 PPT). These rates are all available from the Fed's website.**- Make sure to include the date you are quoting these numbers from (like a citation in ACAD 103 and 201) AND do NOT use Inflation Indexed Bonds!
**Also note at the side here on Investopedia - Mortgage Rates**

** Week 2**

**December 9, 2008** ** Finish Chapter 3 and Chapter 4 The Behavior of Interest Rates**

- Bring your calculators today!!
**Problem Set 1 due today! After I collect them, the assignments are late and 3 points will be subtracted.**- Let's do the calculations:
- A Bank's Liabilities - IOUs (What's an IOU?) What is money?
**Quiz today - calculate an inflation rate!**- Discount Bonds - U.S. Treasury Bills, for example
- Return versus interest rate - capital gains/losses
- Reinvestment Risk

**Central Banks - the Fed and the PBC (People's Bank of China)****Mishkin's Chapter 4 PPT****The Theory of Asset Demand**- Wealth
- Expected return
- Risk
- Liquidity
- Also the Benefits of Diversification

**The Loanable Funds "Framework"**- Notice the y-t-m (interest rate) IS the expected return!
- Key also is that "The interest rate is the inverse of the Price of a Bond"
**Look at BOTH graphs - The Bond Market, which is the inverse of the Loanable Funds Market**- "Shifts"
- Demand, know the Theory of Asset Demand
- Supply, Booms/Recessions, Expected Inflation and Government Activities

- 4 Applications - 1. "The Fisher Effect," 2. Business Cycles, 3. Negative Savings Rates and 4. Government Budget Deficit

**Credit Markets and the Yield Curve**- Problem Set 2 - assigned today - "Interest rate calculations" Due on December 18
**Day 3 PPT**- Ever wonder what a Collateralized Debt Obligation is?

**Bring your calculators today!!****Day 4 PPT****Chapter 8: The Fed****The Fed's Balance Sheet**- Open Market Operations versus Discount lending - how does each affect the balance sheet
**The Federal Funds Market - Changed since our book - notice the "FUNKY" Supply curve in the PPT**- What are Federal Funds? A great definition question for the Mid-term exam! (See pg. 262)
- The "Tools" and the Affect upon the Money Supply - Notice the PPT
**Tools of the Central Bank: Open Market Operations (Buying and Selling Bonds), Discount Rate, Required Reserve Rate****Quiz today - calculate some growth rates!****Money Rates - Note that data may be found in the Federal Reserve Board of Governor's website.****For Tuesday, December 16, 2008 find the prime rate, near closing bid Fed Funds rate, commercial paper rate, T-Bill rate and LIBOR rate. Hint see p. 273. (5 pts)****Three Places worth looking for rates for Tuesday:**- Bloomberg's Rates and Bonds (Hint - click on "Key Rates")
- At the FED - Commercial Paper rates!
- Wall Street Journal - "Bonds"
- Money Rates
- Bankrate.com

- Side thought from last year:
- Is the Fed on a NEW Monetary Policy model?

** Week 1**

**An Introduction to Financial Institutions and Markets****Chapter 1: Very Briefly, Financial Markets**- Mishkin's Chapter 1 MOSTLY READING!
- Debt Markets and Interest Rates (SHIBOR)
- Graph - T-Bills versus US Gov't Bonds versus Corporate Bonds - what's the difference? Page 5
- "The interest Rate" - notice that (mostly) all interest rates track together

**Stock Markets****Foreign Exchange Markets****The Yuan Now Pegged to the Dollar again!?!**- Mishkin's Chapter 3 PPT
**Central Banks - the Fed, the PBC (People's Bank of China)****The Money Supply and Financial Intermediaries****Problem Set I AVAILABLE HERE! The PS is due Tuesday, December 9, 2008 at the beginning of class for 15 points.**- What is a price index and how do we calculate them? CPI, GDP deflator
- Growth rates (inflation rate) will also be calculated.
- Bring your calculators today!!
**Day 1 PPT**

**Please note: 6-packs and 12 packs are the same - "my bad" - not meant to be different! Problem Set 1.****QUIZ - the 3 Goals of any MACROECONOMY! and 3 indicators!**- Review the price indices homework, questions?
- What is the value of any index at the base year?
- Bring your calculators today!!
**Mishkin's Chapter 2 PPT - For Review and Reading**- Growth rates (inflation rate) will also be calculated.
- Real versus Nominal Wage rates
- Some key concepts from your reading of Chapter 2: (See PPT)
**Primary and Secondary Markets****Adverse Selection and Moral Hazard**- Transaction Costs and Economies of Scale

- Let's do the calculations:
- Simple Present Value
- Simple Loan
- Simple Present Value of a Future Amount
- Fixed Payment Loans - Yield-to-Maturity
- Coupon Bond Calculations - Consol Rate VERY IMPORTANT!!

**Day 2 PPT - Basic information about Chapter 2 - read on your own! REQUIRED!~**

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email: andrew at andrewparkes.com

*Last Update: November 29, 2008
By Andrew L. H. Parkes, Ph. D. *